Oblivion:Sleeping and Eating

Level-up is triggered when the character has accumulated 10 major skill increases and finds a legal bedroll or bed to sleep on without being interrupted by a random enemy encounter. Waiting will not trigger level-up. Other than leveling up, becoming a vampire, or other quest related needs, however, there are no benefits to sleeping over waiting. The purpose of both waiting and sleeping in the game is to allow the user to pass time and recover Health, Magicka, and fatigue.

Inns - Prices at inns vary - usually from 10-40 gold - though with the number of free beds in the game, paying for one is not needed in most cases. Beggars and other people are helpful in finding the cheapest (or most lavish, if you prefer). Inns are available in every city, in many villages, and on most major roads.

Factions - Joining the Mages or Fighters Guild gives you a free bed in almost every town. (There's no Fighters Guild hall in the Imperial City, and you cannot get access to the Mage Quarters at the Arcane University until you have joined the Mages Guild.) Other factions may give you a free bed in a single location (Arena, Dark Brotherhood, Knights of White Stallion, the Blades, Knights of the Thorn, etc.)

Beggars' bedrolls - Some of these are marked as "owned", but others are free.

A few houses (such as the Abandoned Shack in the Waterfront District of Imperial City and the Skooma Den in Bravil) have no owner so the beds can be used whenever they are available.

Bandit camps - Be careful, as these carry the greatest risk (albeit small) of being interrupted by an unfriendly creature or NPC.

Caves, Ayleid Ruins and Forts often have beds and/or bedrolls that can be used once all enemies in the vicinity have been killed.

Sleeping has additional effects upon vampires, as does feeding on the blood of the living. These are covered in detail here.

Eating is not necessary for survival. Eating random ingredients serves to grant temporary physical effects, increase your alchemy skill, or simply lighten the load you're carrying. Ingredients can be eaten as weak potions for the primary effect of the ingredient. A list of primary effects can be found on the Ingredients page. Be careful though, because some ingredients are poisonous!

Most food items will restore your fatigue when eaten, but other useful/interesting effects are readily available on-the-go in Oblivion. Eating fresh Daedra Hearts restores your health, consuming Daedroth Teeth grants brief Night-Eye, and Bloodgrass provides the Chameleon effect, though not for long enough to be useful. Cairn Bolete Caps and Boar Meat can also be consumed to restore roughly 10 points of health each. Eat Clannfear Claws or Mandrake Root to cure any diseases you may have.